Life insurance is one of the most valuable financial products that a young family can purchase. Life insurance is designed to provide financial support should something happen to you or your spouse. Think about the consequences to your family if you are the sole wage earner in the family and you were to suddenly die. Life insurance can provide your family members the resources to maintain their lifestyle when you die. It can replace some or all of your income, pay off debts, cover funeral costs and can even help fund longer-range needs like college tuition or retirement.
For example, the husband works and makes $100,000 per year, the wife stays at home,what happens to the wife and children if the husband dies unexpectedly? How is the mortgage and other bills going to be paid? Unless you are wealthy and have a big emergency fund, you need to plan for these things and purchasing life insurance is a great option. Insure your spouse or partner as well, even if he or she doesn’t work outside the home. A stay-at-home parent provides vital household services—childcare, house upkeep and transportation to name a few—that would be expensive to replace.
Reasons Why Young Families Need Life Insurance
When you are young with family and children, it becomes even more important for several reasons:
1.You are in the asset accumulation phase with cars and houses, and an unexpected death can really damage these plans.
2. This is the period when debts are the highest (mortgage, car loans, student loans, etc.) and the bills will keep coming no matter what.
3. Anybody with children knows they are expensive. The cost of college is also increasing over time.
Term Life Insurance is Usually the Best Option
Term life insurance is the simplest form of life insurance and usually the most cost-effective option for young families. You pick a length of time to be covered, a death benefit, and the monthly premium is the same throughout the life of the policy. Term lengths are generally 10, 15, 20, and 30 years. When deciding on a term length, think about how much coverage you will need. You usually just want to get through the accumulation phase and make sure your children get through college, which can be ages 55 to 65. We are mostly looking at a 20 or 30 year policy, which is very common.
Cost of a Term Life Policy
To determine your death benefit, we use the rule of 10 times your salary + your entire mortgage + the cost for each child to attend four years of college. If you make $75,000 a year, with a $300,000 mortgage, and have two children with estimating each year of college costing $30,000, you would need $1,140,000 in term life insurance. Sounds like a lot, right?
To give you some idea about the monthly cost: at a preferred non-smoker rate for a healthy 30-year old male, it would cost approximately $60/month for a 20-year term policy and $100 for a 30-year term policy. Similarly, for a healthy 40-year old male, it would cost $90/month for a 20-year term policy and $150/month for a 30-year term policy. Healthy females of similar age tend to be less expensive for the same death benefit and policy term. Smokers and people with health issues will be more costly.
Regardless of the term length that you choose, term life can provide peace of mind and a financial safety net that’s budget friendly even for young families who have limited resources.
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Written by Bill Pepe